Claimant not considered investor due to interpretation of “seat” under Cyprus–Montenegro BIT

CEAC Holdings Limited v Montenegro, ICSID Case No. ARB(AF)/14/8

A tribunal at the International Centre for Settlement of Investment Disputes (ICSID) declared by majority that the claimant did not have a “seat” in Cyprus under the Cyprus–Montenegro bilateral investment treaty (BIT) and therefore did not qualify as an “investor” under the BIT. Accordingly, the tribunal declined to exercise jurisdiction over the case.

Factual background and claims

The case concerns an aluminum plant (KAP) in Montenegro which was owned and managed by CEAC, a company established under the laws of Cyprus. In 2003 CEAC acquired approximately 65 per cent of KAP’s shares from the Government of Montenegro. To improve and make KAP profitable, CEAC also purchased a minority share of KAP’s main supplier of raw materials, RBN. In addition, CEAC’s parent company acquired in a tender process all of the shares in a Montenegro state-owned coal power plant to ensure KAP had a source of electricity.

In 2006 CEAC began experiencing problems when it learned that Montenegro had provided inaccurate financial statements for KAP and RBN during the tender process, which understated KAP’s debts and obligations by €10 million. This led to the end of the privatization of the coal power plant by the Montenegrin parliament “based on dubious reasoning,” compromising KAP’s supply of competitively-priced electricity.

CEAC initiated an arbitration against the sellers and Montenegro under the purchase and sale agreement in order to resolve these issues, but it was discontinued after entering into a settlement agreement in November 2007. Pursuant to the settlement, CEAC transferred 50 per cent of its shares in KAP to Montenegro, which in exchange undertook to subsidize KAP’s electricity supply and to issue state guarantees to KAP.

In 2014, CEAC initiated ICSID arbitration against Montenegro, asserting that the government impeded its attempts to restructure and modernize KAP by a number of actions that caused KAP to default on its debts. These actions included, according to CEAC, the refusal to provide KAP with the electricity subsidies granted under the settlement agreement, the refusal of Montenegro’s representative on the KAP board of directors to approve the financial statements and business plan and the refusal to provide its written consent as guarantor under a loan agreement.

CEAC claimed that Montenegro breached several obligations under the BIT, including the fair and equitable treatment (FET) standard, the national and most-favoured-nation treatment clauses and the prohibition against unlawful expropriation, requesting monetary compensation.

The issue of the “seat”

CEAC sought an award declaring that it had a seat in Cyprus and thus qualified as an “investor” pursuant to Article 1(3)(b) of the BIT. For its part, Montenegro requested a declaration that CEAC did not have a seat in Cyprus.

Article 1 of the BIT provides in relevant part: “3. The term ‘investor’ shall mean […] (b) a legal entity incorporated, constituted or otherwise duly organized in accordance with the laws and regulations of one Contracting Party, having its seat in the territory of that Contracting Party and making investments in the territory of the other Contracting Party.”

According to CEAC, the meaning of the term “seat” cannot be interpreted autonomously under the treaty but should be determined by a renvoi to municipal law. In this context, CEAC maintained that the term “seat” means “registered office,” not “real seat,” and that this is the interpretation supported by Regulation of the European Parliament and the treaty practice of both Cyprus and Montenegro. It contended that it established its registered office in Cyprus and that the respective certificates of registered office constitute conclusive evidence to this effect.

In Montenegro’s view, the “seat” is the place where a legal entity is effectively managed and financially controlled and where it carries out its business activities. It also asserted that the object and purpose of the BIT do not provide a renvoi to municipal law because the “seat test” must be conducted on a basis of reciprocal and identical criteria.

According to Montenegro, the term “seat” interpreted autonomously under the BIT required something “more than a registered office” and even under Cypriot law, the term “seat” cannot be considered as a “registered office” (para. XYZ).

Montenegro’s view was that, regardless of the interpretation of the term, CEAC did not have a seat in Cyprus, and the address provided for the alleged office did not qualify as a registered office within the context of Cypriot law. It disputed that the certificates produced were conclusive evidence, indicating that such certificates are issued without any independent investigation. It also asserted that an attempt to courier a package to that CEAC’s address in Cyprus failed three times because CEAC was not known at that address.

The tribunal’s analysis

The majority considered that for purposes of the analysis it was not necessary to determine the precise meaning of the term “seat” as employed in the BIT given that the evidence in the record did not support a finding that CEAC had a registered office in Cyprus at the relevant time.

The majority also considered that, even under Cypriot municipal law, certificates of registered office are not conclusive evidence that the office exists. It noted that CEAC neither provided evidence against Montenegro’s assertions that the office appeared unoccupied and inaccessible to the public nor indicated another address in Cyprus. Therefore, it concluded that CEAC did not have a registered office in Cyprus at the time the request of arbitration was filed.

CEAC had asserted an alternative claim, alleging tax residency in Cyprus, but the tribunal concluded that, under Cypriot law, “seat” cannot be equated with “tax residence.”

Decision and costs

The majority decided that CEAC did not have a “seat” in Cyprus and therefore did not qualify as an “investor” under the BIT. As a consequence, the majority found that it had no jurisdiction to hear the case and dismissed all other claims. It also ordered CEAC to bear the full cost and expenses of the proceedings except the ones incurred regarding Montenegro’s preliminary objections according to the principle that costs should follow the event and given the fact that Montenegro’s preliminary objections were dismissed.

Separate opinion by William Park

William Park, the arbitrator appointed by CEAC, issued a separate opinion dissenting on the central issue of the seat. Park disagreed with the majority’s finding that “seat” requires more than a “registered office”, asserting that the term remains essentially a municipal law concept derived from continental systems. According to the arbitrator, the plain meaning of “registered office” matches the meaning of “seat” in Cyprus as used in the BIT. Under this standard, the Park stressed that CEAC appeared to have a seat.

Notes: The ICSID tribunal was composed by Professor Bernard Hanotiau (President agreed to by the parties, Belgium national), Professor William P. Park (claimant’s appointee, Switzerland and United States national), and Brigitte Stern (respondent’s appointee, French national). The award of July 26, 2016 is available in English only at

Maria Florencia Sarmiento is a teaching and research assistant at the Catholic University of Argentina.